'Fukushima and climate change'
I'm going to speak about four different things that have happened this year or that are continuing to happen this year, in the energy world, each briefly, just to provide some fodder for discussion. And I'll start with the disaster, accident, in Fukushima.
There isn't much that I can tell you about what is happening there or what will happen, that you don't already know. Let me, though, echo what Richard and Sheila have said about the reaction in the United States and the observation in the United States of the extraordinary response of the Japanese people to what has happened.
And I'll say, in the "nuclear community," in the nuclear expert community in particular, there is admiration for the bravery of the people who have worked at the power plants, dealing with the situation every day. It's quite extraordinary.
What I can say briefly about what has happened is something about its consequences elsewhere in the world, for nuclear development, because all eyes have, clearly, been on Japan. And, as Japan recovers, it will also be looking to the consequences elsewhere.
And, I'm struck by the relatively limited consequences for nuclear power development elsewhere in the world. One could have expected large changes in a substantial number of nuclear power programs.
The only large change we have seen so far, though, is in Germany, which has decided to phase out its nuclear program. But, one could argue that it was already headed that way anyhow, and that the leadership was looking for a timely opportunity to phase out its program.
So, we may have been heading there anyhow.
If you look at the biggest nuclear program in the world, the biggest nuclear development program in the world, in China, there has, clearly, been a pause and a reassessment of the regulatory system. But, it doesn't look like there is going to be any fundamental change in the direction of the Chinese program.
I would leave two big wildcards out there for the future. The first is India. If you look at the history of nuclear accidents and reactions in other countries to them, you find the biggest reactions in countries with democratic systems, and where there isn't already a big development program and construction program under way. So, where there aren't a lot of sunk costs in on-going projects. And India fits both of those criteria. So, I would look to see what might happen in India.
And, the second wildcard is the United States. Right now, there is no impetus for nuclear development, for significant nuclear development, in the United States, for reasons having nothing to do with safety concerns, for reasons having to do with costs and economics.
So, in some sense, we don't know how the U.S. system is reacting, or will incorporate, what has been learned from this disaster. If, in the future, conditions change because of legislation or because of the availability of other energy sources, and the economics of nuclear become better in the United States, then we'll find out how consequential the considerations in the aftermath of Fukushima are for U.S. development.
The second thing I want to talk about briefly is the impact of the "Arab spring" on oil markets. And I choose the term "Arab spring," despite the aversion to it here, because I really want to talk about what happened this spring, not the on-going situation in the Middle East.
For a long time, since the 1970s, the western world and Japan have developed a system for dealing with emergencies in the oil markets, and it's had two basic pillars. One is the development of robust markets that allow supplies to be reallocated when there are major disruptions, and the other is strategic reserves, large either government-owned or privately-owned, but somewhat government controlled, stockpiles that can be released in tense situations, in order to calm the markets.
We have very few tests of this system, and the disruption in Libya, in particular, earlier this year, constituted a rare test, and it behooves us to step back and ask how well did things work out and what have we learned from that experience?
And, while the markets worked decently, I would suggest that they did not work nearly as well as a lot of experts had anticipated. I won't go into the fine details, but there were a set of rearrangements of market flows that people generally expected to happen, after the disruption in Libya, that would minimize the consequences. And those did not happen.
A lot of refiners simply decided they wanted to stick to what they knew, and in a situation of great uncertainty they weren't about to switch things around to make a few extra dollars here or there.
And so, the market was a lot more rigid than people expected.
We also learned lessons about the use of strategic reserves. There was a coordinated release, including the United States and Japan, though considerably later than the actual disruption. But, that experience reinforced two very important things.
The first is that China matters, in a way that it did not when these systems were developed. We have talked a lot about the need or desirability of bringing China into the international system for dealing with oil emergencies. But, the fact that they were not part of it really showed, during this experience.
Policymakers had to ask, "If we put extra oil on the market, will China just use the opportunity to fill up its own strategic reserves at a lower cost?" Because there was a lack of transparency in the Chinese system, we had limited insight into the impact that a release would have.
The second big development that weighed on the strategic reserve release was the new role of financial markets in the oil world. At least, within the U.S. system, there was enormous discussion and debate over how the financial markets would react to a strategic reserve release and what effect that would have on whether the release was successful.
This is something that was not in any way part of the picture when the emergency system was developed, decades ago. And, the experience this spring should tell us that we need to think about this much more carefully.
A third area I wanted to touch briefly on is the natural gas market. Japan has, clearly, been a leader, a pioneer, in the liquefied natural gas world. It has come to rely substantially on natural gas to fill in, in the last several months. And, because its gas prices are linked to oil prices, the situation in the Middle East has spilled over into natural gas costs, for Japan.
And, the big development in the last couple years, beside the massive increase in Japanese demand for natural gas, is the so-called "shale gas revolution" in the United States. There has been a huge boom in gas production, which has freed up enormous supplies, particularly from Qatar, for export elsewhere. That is already having fundamental implications for natural gas in Europe, and putting Europe in a position of far greater power than it was before, with respect to Middle Eastern suppliers and with respect to Russia.
So, there is clearly a question, in this part of the world, as to whether similar consequences might eventually be expected here. I would suggest that unless the United States starts actually exporting in significant quantities, change will be slower to come to this part of the world. And, I don't think it's a foregone conclusion that the United States will start exporting in large quantities.
There are three big questions, I suspect, to be resolved still. The first is the actual domestic development. There is support in many parts of the country for shale gas development, but opposition in some of the emerging areas. And, it still remains to be seen how that will be resolved.
The second is there will be a domestic political debate over exports. Gas companies will want to export, but consumers, the chemical industry, and utilities, will probably oppose nature gas export. So, there is a political fight still to be had.
And, the third front is a legal front. Some of you may know that there is a strong disposition in U.S. law to export to countries with which the United States has free trade agreements. So Korea, now, is eligible for substantial exports.
And, one question to be determined is whether, as negotiations over TPP progress, whether that will qualify, whether Congress will decide that that qualifies Japan for preferential access to U.S. natural gas.
As the TPP negotiations go forward, we will see whether Japan gets special access as well.
Let me finish with a couple of brief observations in a fourth area. The annual UN climate negotiations are wrapping up tomorrow, in theory, in Durban, South Africa. And I can already predict for you that there will be headlines talking about how the talks have failed to conclude a legally-binding agreement on climate change, and probably to set a roadmap for developing a legally-binding agreement in the future.
That should not be a surprise. There are structural reasons for why a legally-binding agreement will not happen this year and, frankly, is not in the cards for the foreseeable future.
I would suggest, though, that that is not the critical issue. A legally-binding agreement can help promote progress, but it is only one of many tools. The more fundamental problem is that most key countries are not particularly interested in ambitious efforts to reduce their greenhouse gas emissions, whether or not others adopt similarly-ambitious programs.
And, in that sort of situation, the international architecture becomes a secondary issue. I don't see enormous prospect for change in that, in the near term, but if the United States -- and I'll just speak about the U.S. situation -- if the United States can get its broader economic house in order, I think we will have a more coherent discussion, at least on that front.
Let me finish with one last observation. I divided my remarks into some about what you would normally call energy security, and others about climate change, and that's normally how we discuss these issues. But, ultimately, we are talking about the same physical reality when we have these conversations. And, we need to start having a more integrated conversation about the two.
Japan is already confronting this, as it reassesses its basic energy plan. It is looking both at energy security, but also at its goals for emissions reductions.
In the United States, there is a conversation around coal but also, increasingly, around oil production and imports and relationship to the climate agenda.
And ultimately, if we are to have a coherent strategy for energy, these two conversations will need to become much more closely linked than they are today.
- « Prev
- Next »